In Nevada, a Chinese King of the Hill

Mount Hope in Eureka, Nev., where Chinese entrepreneur Liu Han is the main financier behind a $1.3 billion molybdenum project.
General Moly

By

James T. Areddy

Updated Dec. 28, 2012 6:17 p.m. ET

EUREKA, Nev.—Silver prospectors, gamblers and adventurers founded this mining town in 1864, but Eureka has never seen a fortune-hunter quite like Liu Han.

Mr. Liu, a little-known Chinese business mogul, is the primary financier for a $1.3 billion plan to blast the top off a hill called Mount Hope just north of Eureka to remove its lode of metal called molybdenum. Mount Hope, adjacent to the old Pony Express Trail in central Nevada, holds one of the world's biggest undeveloped deposits of the silvery element moly, used to harden steel for advanced applications such as piping for nuclear-power plants.

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Liu Han at a 2010 interview.
The Wall Street Journal

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The Bureau of Land Management last month authorized the mine to operate, greenlighting a project that promises to make Mr. Liu—a 46-year-old who likes driving fast cars and making bold commodity bets—a powerful voice in global moly trade. The Nevada mining deal—along with a similar moly play by Mr. Liu in Australia—illustrates how a budding class of Chinese private investors suddenly has the wherewithal to upend entire sectors.

Mr. Liu's backing for the Eureka project through his closely held company Sichuan Hanlong Group has drawn little notice outside the industry, which dug an estimated $2.2 billion worth of moly out of 10 U.S. mines last year, according to the U.S. Geological Survey.

Ionut Lazar, a senior consultant and moly specialist at CRU Strategies in London, said Hanlong's U.S., Australia and China projects have the potential to influence moly prices.

Few investors cut a more swashbuckling profile than Mr. Liu, who arrived for a rare December 2010 interview near Hanlong's offices in the southwestern Chinese city Chengdu driving a Ferrari and with a mink coat draped over his shoulders. Though Hanlong's investments are closely followed in mining circles, the tycoon Mr. Liu has rarely been interviewed and declined repeated requests recently to provide updates to his views.

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Mr. Liu's latest commodities play is publicly-traded, Colorado-based General Moly Inc., the controlling shareholder and manager of the mine near Eureka. Hanlong will ultimately invest $80 million, with the final half due in coming months, giving it just over a 30% stake in General Moly. It has pledged to arrange and guarantee up to $790 million in mine financing, largely through Chinese state-owned banks.

Once mining begins, probably in 2015, Hanlong has agreed to buy most of the output, General Moly's chief executive, Bruce Hansen, said in an August interview.

Mr. Hansen said that underneath Mount Hope's sparsely forested slopes lies "one of the largest—if not the largest—undeveloped moly deposits in the world." General Moly estimates Mount Hope has 1.3 billion pounds of proven and probable reserves of moly.

In the 2010 interview, Mr. Liu took pains to prove his credentials as a private businessman who is out for profit and isn't doing the bidding of the Chinese government. Over a lunch featuring pigeon stuffed with shark fin, Mr. Liu described himself as a self-made tycoon and budding force in global natural-resources markets.

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A 1936 photo of Eureka, Nev., a mining town that has caught the interest of a Chinese business mogul.
Corbis

Overseas investments by China's giant state-owned enterprises have long been controversial, especially in the natural-resources sector. Foreign governments worry that natural resources could end up helping a rival economy, or even military power. Most recently, the Canadian government approved the purchase of energy producer Nexen Inc. but said it was unlikely to approve other deals by government-controlled companies. Private companies in China sometimes have close ties to the government, according to analysts.

"The [Chinese] government supports, helps and coordinates the development of enterprises," Mr. Liu said two years ago as an aide lit him another of his Panda brand cigarettes. "We enterprises operate and pay tax in accordance with the law. And the government regulates according to the law. That is the relationship."

Mr. Liu's investment in General Moly came through a circuitous route. After moly prices fell in 2009, he approached a cash-strapped Australian miner, Moly Mines LLC. and quickly struck a deal to pay $200 million for 55% of the company.

General Moly was energized by the news. "In November '09, we saw Hanlong, who we never heard of before, announce this investment into Moly Mines," General Moly's Mr. Hansen said in the 2010 interview.

General Moly tracked down Mr. Liu and by month's end Hanlong made an offer. "They were relatively direct in saying, 'What we'd like to do is have a significant position in General Moly itself, and we'll provide the financing you need,' " Mr. Hansen recalled.

Now, key permits are in place to begin mine construction in Eureka but moly prices have slid to the "undervalued" point that enticed Mr. Liu to invest in the first place. In Australia, Mr. Liu has delayed an investment into a mine company there, citing slow progress with Chinese banks to complete financing. Also, Australia's securities regulatory agency is pursuing insider-trading charges against a small group of former Hanlong employees in that country; the agency hasn't alleged illegal activity by Hanlong, which says it condemns insider trading.

Brawny and engaging, Mr. Liu isn't well known in China, where references to him in domestic media are mostly related to his patronage of rural schools. Mr. Liu says he was born to teachers in the city of Guanghan, in Sichuan province, and studied business management at Sichuan University.

Hanlong's website describes Mr. Liu as the founder of the 15-year company, which boasts more than $3 billion in assets, including Chinese hydropower dams, natural-gas distribution networks and major highways. Mr. Liu says he got his start trading steel pipe in the city of Chongqing when he was in his 20s. For his first big deal, he says he bought a stockyard of pipe and sold it at a nearby commodity exchange for a profit of five million yuan, nearly $800,000. Mr. Liu said in the 2010 interview he took advantage of price distortions in the chaotic marketplace and quickly earned millions of dollars.

Mr. Liu said that he made a 1997 trade in sorghum futures that turned out to be very unfavorable for a billionaire from China's northeast named Yuan Baojing. Later, Mr. Liu watched from a Sichuan hotel entrance as a gunman opened fire on his parked car, he said. Mr. Liu, who was unhurt, said he had no idea who was responsible.

Mr. Yuan was subsequently found guilty of a murder connected to the shooting, according to court documents, and executed in 2006. "My conclusion is, do no evil or you will be punished in this life," Mr. Liu said in 2010.

Apart from Hanlong, Mr. Liu is also affiliated with a chemical company with nearly $700 million in annual revenue called Sichuan Hongda Co. that is run by his cousin. Hanlong company documents sometimes identify Mr. Liu as a senior executive or key shareholder of Hongda, one of southwest China's largest companies.

Mr. Liu said in 2010 he was a founding investor in Shanghai-listed Hongda but years ago sold his one-third stake. Hongda, which declined to comment, shares an office block with Hanlong.

Mr. Liu's cousin, Liu Canglong, owes his fertilizer empire to a small amount of government investment at the dawn of China's market reforms in 1979. Today he is a stalwart of Communist Party politics in southwestern China and an influential power broker as deputy chairman of the party-affiliated business group All-China Federation of Industry & Commerce.

But Mr. Liu plays down his own links to China's government, pointing out in the 2010 interview that he isn't a party member. General Moly regulatory filings refer to Mr. Liu as a Hong Kong passport holder, rather than a mainland China citizen.

Asked in 2010 about his confidence in the moly market, the tycoon offered choice words before roaring off in his black Ferrari: "Liu Han always wins. Liu Han never loses."

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